IT WAS a close call but the MacarthurCook Industrial Reit (MI-Reit) manager won over enough unit holders to secure a contentious $430 million rescue deal at a rowdy shareholder meeting yesterday.
The vote comes after a bitter war of words between the manager and Cambridge Industrial Reit’s manager – a key stakeholder in MI-Reit – which opposed the rescue plan and had wanted to take over as manager. However, the Monetary Authority of Singapore killed off this option by ruling it could not manage both Reits.
Unit holders at the extraordinary general meeting (EGM) had to vote for a total of five resolutions in order to give effect to the plan. Two of the resolutions attracted only about 52 per cent of the votes.
The three-hour meeting, of about 250 shareholders held at the Marina Mandarin Hotel, included many questions from investors clearly unhappy at the plan. MI-Reit’s rescue deal, involving a share sale to ‘cornerstone’ investors, the sale of new units to existing unit holders and $215 million in loans, had been condemned by Cambridge as ‘massively destructive’ to unit value.
Critics say the plan favoured new investors. AIMS Financial Group, AMP Capital Holdings and other cornerstone investors get to buy 221.5 million new units at a 32 per cent discount from the Nov 5 price of 41 cents, and a hefty 70 per cent discount to the Reit’s net asset value.
The deal includes buying four properties at a small 2 per cent discount to valuation and a two-for-one rights issue at 15.9 cents each. The deal was described by MI-Reit manager chief executive Nicholas McGrath as the ‘best solution’.
The Reit has to meet debt obligations amounting to $316 million, including a $90 million obligation to buy 1A International Business Park, by Dec 31.
No banks would lend earlier in the year and it has already had two debt extensions. The share sale obviously means a dilution for investors, said Mr McGrath. ‘But there’s no other offer on the table.’
One group of disgruntled investors refused to buy the plan, saying there must be other ways of saving the firm.
A 36-year-old unit holder working in the financial industry asked if MI-Reit had considered selling some properties at a slight discount as well as doing a smaller rights issue to reduce its debt level.
This would have let the Reit secure bank financing now that the economic outlook has improved. Why buy four properties now at nearly full asset value if it had not taken this course, he asked.
Another unit holder said bluntly: ‘You are purposely dumping four properties to us at full valuation.’ Mr McGrath said this was part of the deal. ‘We’ve been the weaker party all of this year.’ Selling properties means taking big haircuts and would not solve the problem, he said.
The ‘genesis of all MI-Reit’s problems’ was this unfunded acquisition of the International Business Park property – courtesy of the previous management. One unit holder who attended the EGM with his son, both of whom own 400 lots in MI-Reit, said his ‘hard-earned money’ was at stake.
Another unit holder, Mr Ang Kong Meng, who owns ‘a few per cent’ of MI-Reit, would rather see it liquidate than vote for the plan. The only people who benefit are the new investors; the minority shareholders will suffer, he said.
Cambridge Industrial Trust Management chief executive officer Chris Calvert, the former MI-Reit CEO, said the effect of issuing new low-priced units to the new investors is to dilute the holdings of MI-Reit minority unit holders by about half. He also asked why MI-Reit’s manager thinks it is in unit holders’ interests to let AMP and AIMS join in the rights issue and take over half the units on offer. At least one unit holder, former teacher Clarence Ho, was glad to vote for the plan as he likes the rights issue plan.
At the end, a clearly delighted Mr McGrath told reporters that unit holders can now look forward to a completely recapitalised Reit, with a 29 per cent leverage, the lowest in the industrial Reit sector here.
Source: Straits Times, 24 Nov 2009